United States
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2002 Commission file number 0-18170
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CRYOMEDICAL SCIENCES, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 94-3076866
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(State of Incorporation) (IRS Employer I.D. Number)
1000 Cobb Place Blvd.
Building 200, Suite 270
Kennesaw, GA 30144
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(Address of principal executive offices)
Issuer's telephone number, including area code: (770) 426-0101
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
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12,413,209 Shares of Cryomedical Sciences, Inc. Common Stock, Par Value $.001
Per Share, Were Outstanding as of May 14, 2002.
CRYOMEDICAL SCIENCES, INC.
FORM 10-QSB
QUARTER ENDED MARCH 31, 2002
INDEX
Part I. Financial Information Page No.
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Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 2002
(unaudited) and December 31, 2001 3
Consolidated Statements of Operations for the
three-month periods ended March 31, 2002 and
March 31, 2001 (unaudited) 4
Consolidated Statements of Cash Flows for the
three-month periods ended March 31, 2002 and
March 31, 2001 (unaudited) 5
Notes to Consolidated Financial Statements 6 - 8
Item 2. Management's Discussion and Analysis
or Plan of Operation 9 - 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2002 2001
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(unaudited)
ASSETS
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Current assets:
Cash and cash equivalents $ 121,342 $ 286,105
Accounts receiveable, net of allowance for doubtful accounts of
$26,970, respectively 46,886 54,043
Inventories 475,898 487,858
Prepaid expenses and other current assets 23,193 23,192
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Total current assets 667,319 851,198
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Fixed assets, net of accumulated depreciation of $2,173,281 and
$2,138,614, respectively 482,321 454,293
Intangible assets, net of accumulated amortization of $98,161 and
$87,855, respectively 460,794 471,099
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Total assets $ 1,610,434 $ 1,776,590
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
Accounts payable $ 1,048,946 $ 1,000,027
Accrued expenses 385,046 465,797
Notes payable 250,000 --
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Total current liabilities 1,683,992 1,465,824
Commitments -- --
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Total liabilities 1,683,992 1,465,824
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Stockholders' equity:
Preferred stock, $0.001 par value per share, 1,000,000 shares
authorized; 12,000 iissued and outstanding 12 12
Common stock, $0.001 par value per share, 25,000,000 shares
authorized; 12,413,209 iissued and outstanding 12,413 12,413
Additional paid-in capital 38,009,325 38,009,325
Accumulated deficit (38,095,308) (37,710,984)
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Total stockholders' equity (73,558) 310,766
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Total liabilities and stockholders' equity $ 1,610,434 $ 1,776,590
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See notes to financial statements
3
CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
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2002 2001
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Revenues $ 302,584 $ 475,949
Cost of sales (82,037) (262,047)
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Gross profit 220,547 213,902
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Expenses:
Research and development 231,618 449,485
Sales and marketing 17,019 462,117
General and administrative 356,838 396,718
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Total expenses 605,475 1,308,320
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Operating loss (384,826) (1,094,418)
Interest income, net 102 19,090
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Net loss $ (384,826) $ (1,075,328)
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Basic net loss per common share $ (0.03) $ (0.09)
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Weighted average number of
common shares outstanding 12,413,209 12,413,209
============ ============
See notes to financial statements
4
CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
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2002 2001
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Cash flows from operating activites:
Net loss $ (384,826) $(1,075,328)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 34,667 59,809
Amortization 10,305 10,305
Provision for bad debt -- 5,140
Write off of accounts receivable -- (3,056)
Changes in operating assets and liabilities:
(Increase) decrease in receivables 7,157 (336,056)
Decrease in inventories 11,960 140,278
Decrease (increase) in prepaid and other current assets 501 (79,632)
Increase (decrease) in accounts payable 48,919 65,478
Increase (decrease) in accrued expenses (80,751) 179,261
Decrease in extended warranties -- (2,488)
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Net cash used in operating activities (352,068) (1,036,289)
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Cash flows from investing activities:
Purchase of equipment (62,695) (24,195)
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Net cash used in investing activities (62,695) (24,195)
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Cash flows from financing activities:
Increase in notes 250,000 --
Decrease in capital leases -- (2,872)
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Net cash provided by financing activities 250,000 (2,872)
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Net (decrease) increase in cash and cash equivalents (164,763) (1,063,356)
Cash and cash equivalents at beginning of period 286,105 2,150,112
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Cash and cash equivalents at end of period $ 121,342 $ 1,086,756
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See notes to financial statements
5
CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. General
Cryomedical Sciences, Inc. (the "Company") is engaged in the research,
development, marketing and manufacture of low temperature medical technologies
for cryoablation of cancerous tissue, and for the preservation of organs,
tissues and cells.
The Consolidated Balance Sheet as of March 31, 2002, the Consolidated
Statements of Operations for three-month periods ended March 31, 2002 and 2001,
and the Consolidated Statements of Cash Flows for the three-month periods ended
March 31, 2002 and 2001, have been prepared without audit. In the opinion of
management, all adjustments necessary to present fairly the financial position,
results of operations, and cash flows at March 31, 2002, and for all periods
then ended, have been recorded. All adjustments recorded were of a normal
recurring nature.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these consolidated
financial statements be read in conjunction with the financial statements and
notes thereto for the year ended December 31, 2001 included in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 2001.
The results of operations for the three-month period ended March 31, 2002
is not necessarily indicative of the operating results anticipated for the full
year.
B. Net Loss per Share
Net loss per share is based on the weighted average number of common shares
outstanding during the periods ended March 31, 2002 and 2001. No effect has been
given to unexercised stock options or warrants because the effect would be
anti-dilutive.
C. Inventories
Inventories consist of the following: March 31, 2002 December 31, 2001
Raw materials and purchased parts $ 277,146 $ 268,768
Finished goods 198,752 219,090
$ 475,898 $ 487,858
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CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
D. Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards (SFAS) as follows:
No. 141, Business Combinations
No. 142, Goodwill and Other Intangible Assets
No. 143, Accounting for Asset Retirement Obligations
SFAS No. 141 eliminates the use of the pooling-of-interests method of
accounting for business combinations and requires that all such transactions be
accounted for by the purchase method. In addition, SFAS No. 141 requires that
intangible assets be recognized as assets apart from goodwill and that they meet
specific criteria described in the Standard. This Standard is applicable to all
business combinations initiated after June 30, 2001 and all business
combinations accounted for using the purchase method for which the date of
acquisition is July 1, 2001 or later. Management will follow the Standard in
accounting for all future business combinations and does not believe that
adoption will have any significant impact on the Company's financial statements.
SFAS No. 142 eliminates the requirement to amortize goodwill and requires
that other intangible assets be separated into assets that have a finite useful
life and those with an indefinite useful life. Intangible assets with a finite
useful life are to be amortized over that useful life. Intangible assets with an
indefinite life are to be measured for impairment annually, or more frequently
if circumstances indicate impairment may have occurred. With respect to
goodwill, the Standard requires that it be measured annually for impairment
under a defined two-step process that begins with an estimation of the fair
value of a "reporting unit," which is defined in the Standard. The first step in
the process is a screening for impairment and the second step measures the
amount of impairment, if any. Upon initial adoption of SFAS No. 142, the change
is to be reported on the financial statements as a change in accounting
principle with the cumulative effect reported in the statement of income in the
period of adoption. The Standard is required to be applied starting with fiscal
years beginning after December 15, 2001, with early application permitted for
entities with fiscal years beginning after March 15, 2001. The Company adopted
this new Standard with its fiscal year beginning January 1, 2002. The Company
has no goodwill and does not believe that adoption of the Standard will have any
impact on its financial statements.
SFAS No. 143 requires that asset retirement obligations be recognized as a
liability in the period in which it is incurred at its fair value if a
reasonable estimate can be made. The associated asset retirement costs are
capitalized as part of the carrying amount of the long-lived asset. The Standard
requires that the liability be discounted and accretion expense be recognized.
SFAS No. 143 is effective for financial statements issued for fiscal years
beginning after June 15, 2001, with earlier application permitted. The Company
does not have any asset retirement obligations as of March 31, 2002, and does
not believe that this new Standard will have any impact upon its financial
statements when adopted.
7
CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets. This
Standard establishes a single accounting model for long-lived assets to be
disposed of by sale and resolves other implementation issues involving
long-lived assets that are impaired or are to be disposed of. The Standard is
effective for fiscal years beginning after December 15, 2001, with early
application permitted. The Company is considering the effects of this new
standard and does not believe that it will have any significant effect on its
financial statements when adopted.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the
Company's consolidated financial statements and notes thereto set forth
elsewhere herein.
The Company is engaged in the research, development, manufacture and
marketing of low temperature technologies for use in the cryoablation of
cancerous tissue and in preserving and prolonging the life of cellular and
genetic material for use in the fields of cell therapy and tissue reengineering.
The Company has been a leader in cryosurgical methods and devices which
ablate unwanted tissue in minimally invasive procedures. The Company completed
initial development of the AccuProbe(R) System (the "AccuProbe") in 1992,
establishing the Company as a leader in the modern cryosurgical marketplace. The
AccuProbe is a sophisticated cryosurgical device designed to freeze and destroy
diseased tissue. It is particularly applicable where diseased tissue cannot be
removed surgically or where surgery is likely to have extensive adverse side
effects. The AccuProbe uses a patented design that maintains Super Cooled Liquid
Nitrogen in a liquid state, resulting in superior freezing characteristics when
compared to other cryosurgical systems.
Based on its understanding of the molecular basis for the cryogenic
destruction of cells, the Company's wholly owned subsidiary, BioLife, is
developing a range of proprietary cell, tissue and organ specific hypothermic
preservative solutions, based on BioLife's patented HypoThermosol(TM) platform
technology. Initial clinical results suggest that BioLofe's derivative
HypoThermosol solutions could significantly prolong cell, tissue and organ
viability, which could, in turn, improve clinical outcomes for new and existing
cell and tissue therapy applications, as well as for organ transplantation.
BioLife has entered into research agreements with several emerging companies
engaged in the research and commercialization of cell and gene therapy
technology and has received several government research grants in partnership
with academic institutions involved in cell and tissue therapy research. BioLife
currently markets its HypoThermosol line of solutions directly and through a
distributor to companies and labs engaged in pre-clinical research, and to
academic institutions.
RESULTS OF OPERATIONS
Revenue for the three-months ended March 31, 2002 decreased $173,365 to
$302,584, compared to $475,949 for the comparable period of the prior year. This
decrease is principally attributable to lower sales of AccuProbes and
accessories, as well as lower mobile services volume.
Cost of goods sold, as a percentage of revenue, improved to 27% for the
three-months ended March 31, 2002, compared to 55% for the comparable period of
the prior year. This improvement was primarily attributable to the increase in
grant and contract revenue and was partially offset by higher cost of goods on
single use probes sold during the period.
Research and development expense decreased $217,867 for the
three-months ended March 31, 2002 to $231,618, compared to $449,485 for the
comparable period of the prior year. The decrease was attributable to decreases
in expenditures for clinical trials related to development of the Hypothermosol
technology, which involved lower engineering headcount and consulting expense.
The decrease also included lower in-house expenditure on the development of the
AccuProbe System, resulting in lower salaries and benefits expense.
Sales and marketing expense decreased $445,098 for the three-months
ended March 31, 2002 to $17,019, compared to $462,117 for the comparable period
of the prior year. This decrease was attributable to the overall reduction in
the Company's network of independent sales representatives.
9
General and administrative expense decreased $39,880 for the
three-months ended March 31, 2002 to $356,838, compared to $396,718 in the
comparable period of the prior year. This decrease is attributable to lower
consulting costs and decreases in salaries and benefits.
Operating expenses decreased $702,845 for the three-months ended March
31, 2002 to $605,475, compared to $1,308,320 for the comparable period of the
prior year. The Company sustained a net loss of $384,826 for the three-month
period ended March 31, 2002, compared to a net loss of $1,075,328 for the
comparable period of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2002, the Company had cash and cash equivalents totaling
$121,342 and a working capital deficit of $1,016,673, as compared to $614,626 at
December 31, 2001. The decrease in the Company's cash and working capital
positions from December 31, 2001 was due primarily to net losses during the
period.
Capital expenditures for equipment totaled $62,695, in the period ended
March 31, 2002, compared to $24,195 in the comparable period of the prior year.
In March 2002, the Company borrowed $250,000 under a 12-month
promissory note agreement. In connection with this debt raise, the Company
issued warrants to purchase one million shares of the Company's Common Stock at
$0.25 per share.
The Company has a working capital deficit of $1,016,673, and in order
to ensure its viability, the Company will need to secure financing in the short
term. In this respect, the Company is currently evaluating its strategic
alternatives, including the sale of some or all of the Company's assets. There
can be no assurance that any transaction will be available on terms acceptable
to the Company, if at all, or that any financing transaction will not be
dilutive to current stockholders. If the Company is not able to raise funds or
achieve some other solution, it is expected that the Company will be required to
significantly curtail or cease its operating activities. The accompanying
financial statements have been prepared assuming that the Company will continue
as a going concern.
FORWARD LOOKING INFORMATION
The information set forth in this Report (and other reports issued by
the Company and its officers from time to time) contain certain statements
concerning the Company's future results, future performance, intentions,
objectives, plans and expectations that are or may be deemed to be
"forward-looking statements." Such statements are made in reliance upon safe
harbor provisions of the Private Securities Litigation Act of 1995. These
forward-looking statements are based on current expectations that involve
numerous risks and uncertainties, including those risks and uncertainties
discussed in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 2001. Assumptions relating to the foregoing involve judgements with
respect to, among other things, future economic, competitive, and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the Company's
control. Although the Company believes that its assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, the Company cannot assure you that the results
discussed or implied in such forward-looking statements will prove to be
accurate. In light of the significant uncertainties inherent in such
forward-looking statements, the inclusion of such statements should not be
regarded as a representation by the Company or any other person that the
Company's objectives and plans will be achieved. Words such as "believes,"
"anticipates," "expects," "intends," "may," and similar expressions are intended
to identify forward-looking statements, but are not the exclusive means of
identifying such statements. The Company undertakes no obligations to revise any
of these forward-looking statements.
10
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three-months ended
March 31, 2002.
11
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Cryomedical Sciences, Inc.
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(Registrant)
Date: May 20, 2002 By: /s/ Andrew Greuling
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Andrew Greuling
President and Chief Executive Officer
(Principal Executive Officer and
Principal Financial Officer)
12